Philips North America has agreed to pay $17 million to settle a lawsuit alleging that the company breached its fiduciary duty in connection with the management of its 401(k) plan.
The settlement, which also included nonmonetary provisions, still must be approved by a judge. The Philips retirement plan has more than $3 billion.
"In addition to the compensation, the participants will be getting an improved plan with significant protections for them to build their retirement assets in the future," said Jerome Schlichter, a pioneer of 401(k) fee litigation who represented plaintiffs in the case.
Silvie Casanova, a Philips spokeswoman, said the company opted to settle despite disagreeing with the lawsuit's claims.
"The settlement allows Philips to avoid a protracted lawsuit and to put additional money toward plan participants' retirement savings rather than spending it on a costly legal battle," she said. "In agreeing to settle the matter, Philips did not make any admission of any facts, liability or wrongdoing and denies that it has engaged in any wrongful conduct."
Plaintiffs alleged that Philips caused its 401(k) plan to pay excessive investment management and administration fees, retain the Vanguard Prime Money Market Fund as the sole capital preservation option despite "microscopically low" yields, and keep the underperforming Principal Diversified Real Asset Fund.
Philips agreed to other provisions, including hiring an independent consultant to review the fund lineup and make recommendations about whether to retain the money market fund and add a stable value or comparable fund, and conducting a request for proposal process for record-keeping services.
The case, Todd Ramsay et al v. Philips North America LLC, was settled early in the litigation process. Plaintiffs filed the lawsuit Thursday in Illinois District Court, and the parties filed their joint motion for preliminary approval of the settlement just one day later, on Friday.
However, the parties had been in contact for more than 18 months, with Philips producing documentation for the plaintiffs after they pursued legal action; the parties entering into "arm's length negotiations" six months ago, according to the settlement filing.
"There's been a process that's been lengthy arriving at this," Mr. Schlichter said. "A case like this has to be approved by a federal court. So the case had to be filed for the court to approve the settlement."